The Five Insurtech Battles
Those who want to understand the trends in insurtech must dare to look at what is taking place across the globe. Because innovation mostly takes place on the international stage. Domestic insurers, on the other hand, too often think from a local market perspective. insurtechs that are active in the European market can be categorized into five groups. Over 80% of these insurtech will swiftly disappear again. The few that do make it through, will shape the future of insurance.
I am often asked which trends can be distinguished in the local insurtech space in Germany. My response is always as follows: Innovation takes place on an international level. You have to analyse the insurtech space from the international or at least from the European continental point of view. Only this leads to an objective trend assessment.
Domestic insurers still too often think from a local market perspective. From our point of view, though it is understandable in view of the regulation and because the target markets are often locally defined, this limited perspective is a mistake.
Similar to other industries it is apparent that the drivers of innovation operate in digital ecosystems that do not know national borders. The messaging business is a good example. Take WhatsApp. In comparison to the already established providers, the startup used the innovation of the App-Stores faster and more efficiently in order to transfer the SMS business into a new era and beyond telecommunications companies. National borders no longer play a role here. WhatsApp took just 6.8 years to serve 1 billion people with messenger services around the globe.
Understanding the Venture Game
In order to understand the innovation wave created by startups, it is imperative to have an aggregated international view of the so-called venture funnel. It may help to consider the startup landscape as a distinct industry in which global, highly professional venture capitalists specialized in cannibalizing other industries through startups within a short period of time, using new technologies. Compensation for this takes place in the form of goodwill or rather in company disposals. The venture industry (especially vertical funds) looks entirely to insurtech and conducts strategic decisions from the amount of startups it sifts through. In full, it is constructed like a funnel, which thins down as a result of failures. The successive investment phases depend on the maturity of the startup and at the same time reflect the brutal selection of the venture process. Munich Re and AXA have so far built a specific global ‘venture funnel’ for insurtechs. Allianz and the Chinese PingAn are currently working hard on this. The early stage of the insurtechs innovation cycle is difficult for most insurers to access. In order to illustrate the extreme selection, in the following graphic we refer to a funnel of hardware startups:
The Chinese Internet Company Alibaba is a prime example. The investor Softbank was able to increase its capital investment ($300 million) by 260x. Incidentally, Softbank is also an investor of Chinese insurtech ZhongAn.
Picture: Achieved returns of global venture capitalists
It is precisely these few winners and benefiters from the venture funnel, as is the case in all other sectors, who will permanently change the insurance industry. Amazon and the retail business are good examples when referring to other industries.
Viewing current European insurtech Venture Funnel
Since 2014, here at insurTech.VC we’ve been recording and observing around 75% of the European insurtech venture transactions in our venture funnel. Essentially, the activities of startups can be divided into five fields. For a start, it is evident that the traditional insurance categories thought processes are broken up in the startup world. This results in a new focus on the value chain.
Our current view on the European insurtech venture landscape:
- “Customer touch points” (keywords: social media, mobile devices and the sharing economy). Customers adapt trends and technologies progressively. This leads to a gap between insurers and costumers, that is addressed by insurtechs. Access is changing and using new channels and methods. Examples here is the online/mobile broker Clark.
- “Data” (keywords: Artificial Intelligence, Predictive Analytics, and Internet of Things). Artificial intelligence is probably one of the fields that have the biggest impact on the insurance industry in our opinion. Here, the startups leveraging innovation through additional data points (such as Internet of Things) and algorithms along the entire value chain. Their customers consist mostly of the insurance companies who would like to gain a competitive advantage. Examples include the startup Predictivebid, which uses artificial intelligence for online user acquisition, and Cytora, which uses artificial intelligence for real-time risk analysis or Atidot, which helps to adjust the insurers life insurance pool on personalised changes of costumers.
- ”Processes” (keywords: Software as a Service, Blockchain, Mobile Devices). The insurtechs are breaking out of a small part of the value chain and offering it to insurers as a shared service or license, enriched with the latest technology and methodology. Examples include Rightindem, which relies on the reporting of mobile claims on modern way and Optiopay, which turns claim payments into discounted coupons for Insurers as a service.
- “Products” (keywords: Internet of Things, new products such as Drones, Usage Based Insurance). The use of new technology creates new risks or product combinations. Drones or cyber products are currently very popular fields in this topic. Examples include startup Verifly, which offers usage-based drone insurance through an app and Relayr.io, predictive maintenance for heavy machinery.
- ”Big Bang” This is about creating a full stack digital insurer, such as those demonstrated by Sherpa in the UK, Oscar in the US, or Wefox/One in Germany. In doing so, the entire value chain is rethought, conceptualized and set up anew. This category includes the digital insurers from the established providers (for example Nexible) as well as the new players who not only have the challenge of user acquisition, but also include the process complexity.
Often overlaps also occur.
Take away for Insurer
Having strategic access to at least a continental insurtech venture funnel will be a key competitive factor in a digital world. Otherwise, we risk having an incomplete view partnering with or investing in insurtechs, leading to false assumptions and wrong strategic decisions.
Mehrdad Piroozram is a serial entrepreneur, angel investor, founder and general manager of InsurTech.vc in Cologne, Germany.